For mortgage brokers, these services can include things such as loan origination, loan marketing, loan closing, loan servicing and pooling of loans. Activities falling outside of the scope of this definition are not covered.

Within policy definitions

Example: “‘Damages’ means money judgment, award or settlement, but damages do not include fines, penalties or disputes over fees, deposits, commissions or charges for goods or services.”

Analysis: This is another example of a place in the policy where the covered acts, events or circumstances become more narrow and focused. Many times, definitions clarify what certain terms mean by going a step further to clarify what they do not mean.

Within policy endorsements

Example: “Prior and pending litigation endorsement: This policy does not cover acts arising out of, directly or indirectly, any prior and/or pending litigation as of (insert date), or any fact, circumstance, situation, transaction or event underlying or alleged in such litigation.”

Analysis: Don’t rely solely on the body of your insurance policy. Read the endorsements. The endorsements modify the coverage granted within the policy. Significant coverage enhancements or restrictions are found in the endorsements.

Within the policy exclusions

Example: “With respect to the coverage afforded for your wrongful acts in rendering or failing to render professional services, this policy does not cover any claim arising out of or resulting from any insured’s obligation to repurchase a loan or to provide indemnity with respect to a loan.”

Analysis: Because of the use of the word “or” in this exclusion, the policy not only excludes coverage for obligations to repurchase loans but also excludes any obligation to provide indemnity with respect to a loan. This will be a significant issue if you purchase a policy to protect yourself from situations in which you may be required to indemnify a third party because of a wrongful act committed in your lending practices. In other words, the exclusions often take away what the insuring agreement grants in coverage.

When looking to purchase insurance, mortgage brokers should take time to review policy contracts with their insurance provider. Make sure you understand the triggers and nuances of coverage. Remember, the devil is in the details.

Tom Delaney is managing director of Bankers Insurance Service (BIS), a provider of fidelity-bond and errors-and-omissions insurance tailored to meet the needs of mortgage brokers and bankers. Endorsed by the Mortgage Bankers Association (MBA), BIS develops insurance programs and risk-management services for the mortgage industry. Delaney serves on the board of directors of the Illinois MBA and is a corporate adviser for the Massachusetts MBA. Contact him at (312) 381-3722 or tom_delaney@fprsi.com.

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